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AMD is big winner from chip flaw fiasco as more than $11 billion in Intel stock value is wiped out

  • Companies will likely diversify their chip security architecture risk by buying more AMD server chips.
  • Fred Hickey, editor of High Tech Strategist, says AMD's new server chips "already had momentum and that momentum will likely be propelled further by the recent security issue disclosures."

Investors are piling into AMD shares and selling Intel stock after major chip security vulnerabilities were revealed earlier this week, and it totally makes sense.

Enterprises will likely diversify their chip security architecture risk for mission-critical applications by buying more AMD server chips. The company's "architecture differences" have proven immune to the more problematic one of the two disclosed vulnerabilities.

British tech website The Register reported Tuesday that some Intel processors have a "fundamental design flaw" and security issue, which spurred the company to confirm the problem later in the day.

AMD shares are up 10.4 percent in the two days through Thursday following the report, while Intel's stock declined 5.2 percent in the period, wiping out $11.3 billion of shareholder value.

One of the two vulnerabilities, called Meltdown, affects Intel processors. The other, named Spectre, could affect chips from Intel, AMD and Arm.

Intel said Wednesday that performance degradation after security updates for Meltdown "should not be significant" for the average user. But on a call with investors, the company admitted a decrease in performance of up to 30 percent was possible after fixes under some "synthetic workloads."

Bank of America Merrill Lynch told clients the big Intel performance hits were "likely for enterprise and server workloads."

On the flip side, AMD said any performance hits will be "negligible" after Spectre-related security software updates and there is "near zero risk of exploitation." The company also confirmed it is not affected by Meltdown due to processor "architecture differences."

Researchers and Apple said Spectre is more difficult to exploit.

Multiple Wall Street analysts predicted AMD will take advantage of the Intel's security issues.

AMD could use it as "a marketing edge given differing architectures and no vulnerability yet," Mizuho Securities analyst Vijay Rakesh wrote in a note to clients Wednesday.

Intel's high-profit data-center business, which sells server chips to cloud computing providers and enterprises, is the chipmaker's crown jewel.

Rakesh noted that Intel had 99 percent market share of the data-center market, representing a huge opportunity for AMD.

Analysts estimate that Intel's data-center group will generate $18.5 billion in sales and $7.4 billion in operating profit in 2017, according to FactSet.

"Longer-term customers could be more motivated to find alternatives at AMD and possibly ARM (CAVM benefits) to diversify the architectural risks," Bank of America Merrill Lynch analyst Vivek Arya wrote Thursday. "AMD appears poised to be the most direct beneficiary."

An AMD gain of significant market share in the server market is not unprecedented. The company hit 25 percent share in 2006. If AMD is able to reach 10 percent or 15 percent market share of the data-center business, it could add billions in revenue to the company's financial results.

Any increase will be a boon for AMD because the Wall Street consensus for the company's 2017 estimated sales is just $5.25 billion.

One leading tech industry analyst says the chipmaker will do just that.

"The news of Intel's processor security issue and the potential performance degradation to correct it comes at an inopportune time as Intel currently faces heavy competitive pressure from its long-time nemesis, AMD," Fred Hickey, editor of High Tech Strategist, wrote in an email Thursday. "AMD's new line of chips is a significant challenger for the first time in many years (since AMD's Opteron chip days)."

AMD launched new line Epyc data-center processors to much fanfare last June with design wins at cloud computing providers Microsoft Azure and Baidu.

"For Intel, it likely means loss of market share (lower revenues) as well as loss of pricing power (lower gross margins) as the advantage shifts to the buyers and away from Intel, which has totally dominated the PC/computer server processor market in recent years," Hickey said. "AMD's new processor chips already had momentum and that momentum will likely be propelled further by the recent security issue disclosures."

WATCH: Intel meltdown sparks security concerns